WASHINGTON – U.S. homebuilding fell to a 13-month low in May and permits tumbled, suggesting the housing market was cooling as surging mortgage rates reduce affordability for many first-time homebuyers.
Housing starts plunged 14.4% to a seasonally adjusted annual rate of 1.549 million units last month, the lowest level since April 2021, the Commerce Department said on Thursday. Data for April was revised higher to a rate of 1.810 million units from the previously reported 1.724 million units.
Economists polled by Reuters had forecast starts would slide to a rate of 1.701 million units. Permits for future homebuilding declined 7.0% to a rate of 1.695 million units.
The housing market is very sensitive to interest rates. Sales have been trending lower over the last few months, with homebuilding mostly moving sideways.
A survey on Wednesday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index hit a two-year low in June, with a gauge of prospective buyer traffic falling below the break-even level of 50 for the first time since June 2020.
The 30-year fixed-rate mortgage jumped 25 basis points last week to an average of 5.65%, the highest level since November 2008, according to data from the Mortgage Bankers Association.
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Home loans are set to get even more expensive. The Federal Reserve on Wednesday raised its policy interest rate by three-quarters of a percentage point, the biggest hike since 1994, to combat soaring inflation.
Single-family housing starts, which account for the biggest share of homebuilding, tumbled 9.2% to a rate of 1.051 million units in May. Single-family homebuilding rose in the Northeast, but fell in the Midwest, South and West regions.
Building permits for single-family homes declined 5.5% to a rate of 1.048 million units. Starts for housing projects with five units or more dived 26.8% to a rate 469,000 units. Multi-family housing permits dropped 10.0% to a rate of 592,000 units.
The number of houses approved for construction that are yet to be started increased 0.7% to 283,000 units. The single-family housing backlog was unchanged at 152,000. These will eventually become starts and help to underpin residential construction.
(Reporting by Lucia Mutikani; Editing by Paul Simao)